EXPRESS: Context Information can Increase Revenue in Online Display Advertising Auctions: Evidence from a Policy Change

Ad exchanges where real-time auctions for display ad impressions take place historically emphasized user targeting, and advertisers sometimes did not know which sites their ads would appear on, i.e., the ad context. More recently, some ad exchanges have been encouraging publishers to provide context information to ad buyers, allowing them to adjust their bids for ads at specific sites. This paper explores the empirical effect of a change in context information provided by a private European ad exchange. Analyzing this as a quasi-experiment using difference-in-differences, the authors find that average revenue per impression rose when the exchange provided subdomain information to ad buyers. Thus, ad context information is important to ad buyers, and they will act on it. Revenue per impression rises for nearly all sites, which is what is predicted by auction theory when rational buyers with heterogeneous preferences are given more information. The exception to this are sites with thin markets prior to the policy change; consistent with theory, these sites do not show a rise in prices. This paper adds evidence that ad exchanges with reputable publishers, particularly smaller volume, highquality sites, should provide ad buyers with context information, which can be done at almost no cost.

Basic Bidding Formats: Characteristics and Differences

In standard auction theory, the ‘revenue equivalence theorem’ asserts that the outcomes of the elementary allocation methods coincide. However, bidding processes differ fundamentally with regard to the decision situation of the participants: Is it at all imperative to take into consideration the number of competitors (‘stochastic’ strategy) or not (‘deterministic’ course of action)? Furthermore, established auction theory neglects the operating modes of procurement alternatives under uncertainty. Apart from the lacking knowledge how many rivals have to be beaten, tenderers regularly are ignorant of the buyer’s reserve price. Then it is even more tentative to calculate an offer based on probability theory. Consequently, the suppliers’ propensity to collude increases.

Essays in auction theory with applications in corporate finance

Αυτή η διατριβή είναι μία συλλογή τριών επιστημονικών δοκιμίων με κεντρικό θέμα την εφαρμογή της θεωρία δημοπρασιών στην εταιρική χρηματοδότηση. Σε κάθε κεφάλαιο της διατριβής παρουσιάζεται το κάθε επιστημονικό δοκίμιο ξεχωριστά εκτός από το Κεφάλαιο 1.Το κεφάλαιο 1 είναι ένα εισαγωγικό κεφάλαιο στο οποίο επεξηγούμε κάποιες βασικές εργαλειοθήκες της θεωρίας δημοπρασιών έτσι ώστε ο αναγνώστης να μπορέσει να κατανοήσει σε βάθος την ανάλυση των επόμενων κεφαλαίων. Σε αυτό το κεφάλαιο συζητάμε κάποια θεμελιώδη επιστημονικά άρθρα τα οποία χρησιμοποιήσαμε ως βάση της έρευνας μας και τα οποία συγκαταλέγονται ανάμεσα στους ακρογωνιαίους λίθους της θεωρίας δημοπρασιών. Το δεύτερο κεφάλαιο διερευνά πώς μπορούν να χρησιμοποιηθούν οι δημοπρασίες της «ενιαίας-τιμής» (uniform-price) στη τιμολόγηση των εταιρικών ομολόγων. Για να έχουμε μία ρεαλιστική προσέγγιση, ενσωματώνουμε στο θεωρητικό μοντέλο τις επενδυτικές εντολές και τα όρια του προϋπολογισμού με τα οποία έρχονται αντιμέτωποι οι διαχειριστές κεφαλαίων, κατά την υποβολή των προσφορών τους για την έκδοση των εταιρικών ομολόγων. Εξ όσων γνωρίζουμε, είμαστε οι πρώτοι οι οποίοι ενσωματώνουν σε ένα μοντέλο όλες αυτές τις μεταβλητές, υπό τη παρουσία της δευτερογενής αγοράς, καταλήγοντας σε κάποια πολύ ενδιαφέροντα αποτελέσματα, τα οποία παρουσιάζονται στο Ενότητα 2.4. του Κεφαλαίου 2 και στο Κεφάλαιο 5.Στα επόμενα κεφάλαια εξετάζουμε πώς μπορούμε να σχεδιάσουμε μία βέλτιστη δημοπρασία για τη διαπραγμάτευση ενός χαρτοφυλακίου μετοχών. Συγκεκριμένα, στο τρίτο Κεφάλαιο προτείνουμε ένα σχέδιο δημοπρασίας σε δύο γύρους για τη τιμολόγηση ενός «τυφλού» χαρτοφυλακίου μετοχών - ένα καλάθι από άγνωστες μετοχές δημοπρατείται σε μία προκαθορισμένη τιμή εκτέλεσης. Ο μηχανισμός επιτρέπει την απελευθέρωση πληροφορίας στο ενδιάμεσο και αυτό το χαρακτηριστικό όχι μόνο μπορεί να μειώσει τα κόστη ρευστοποίησης για τους διαχειριστές κεφαλαίων αλλά μπορεί να μειώσει και τη «κατάρα του νικητή» για τους ίδιους τους χρηματιστές. Στο τέταρτο κεφάλαιο εξετάζουμε ένα μηχανισμό σε δύο γύρους για ένα χαρτοφυλάκιο μετοχών που έχει υποδιαιρεθεί σε επιμέρους πακέτα. Ο διαχειριστής κεφαλαίου δύναται να πουλήσει είτε ολόκληρο το χαρτοφυλάκιο είτε το κάθε πακέτο ξεχωριστά. Ομοίως, η δημοπρασία σε δύο γύρους επιτρέπει την απελευθέρωση της πληροφορίας στο ενδιάμεσο, το οποίο μπορεί να αντισταθμίσει το φαινόμενο της «κατάρας του νικητή». Η βασική μας συνεισφορά και καινοτομία είναι ένας νέος κανόνας τιμολόγησης που προκύπτει πάνω στο «πυρήνα» και επεκτείνει το κανόνα (Nearest-VCG), που ήδη χρησιμοποιείται, σε ένα δυναμικό περιβάλλον μία δημοπρασίας σε δύο γύρους. Ο κανόνας που προτείνουμε αντισταθμίζει το «φαινόμενο του λαθρεπιβάτη» για τους χρηματιστές, παροτρύνοντας τους να υποβάλουν προσφορά σύμφωνη με την εκτίμηση που έχουν για το κάθε πακέτο. Το τελευταίο κεφάλαιο συνοψίζει τα αποτελέσματα από τα προηγούμενα κεφάλαια.

Auction theory and a note on game mechanisms

This paper will review important topics on the subject of auction theory and mechanism design, these include: efficiency first and foremost, also revenue comparison between different types of auctions and the issue of incentive compatibility, individual rationality with the general idea and proof that bilateral trade is inefficient. Mechanism design theory tells us that if buyers and sellers both have private information full efficiency is impossible, however Vickrey auction (single unit auction) will be efficient i.e. will put the goods in the hands of the buyers that value them most. However, the conclusion from this paper is that because of overvaluation of bidders the main result is inefficient, i.e. bids are too high. When weak and strong bidders are compared the main conclusion is that strong bidders’ expected payoff is higher in second price auction (SPA), while weak bidder prefers first price auction (FPA) bid.

Strict Rules of Free Competition (about The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2020)

Studying the research results by Nobel prize-winning economists is a fundamentally important task for determining the most promising areas of development of Russian economic science. The author traces the connections between all these works and their predecessors’ work, many of whom were also awarded the Nobel prize in economics. Three lines of development of the predecessors’ achievements are identifid: information asymmetry, limited rationality, the design of market mechanism and new institutionalism. The article does not address the problems of auction theory related to its formal justifiation, which is part of mathematical economics and game theory. However, it is noted that this is an essential part of the laureates’ achievements. The article’s main conclusions are that the prize received for “improving the theory of auctions” fis into the broader economic research context. The winners solved the problems of maintaining free competition and reducing the market’s likelihood of monopolization. The author pays special attention to the results of the empirical analysis of actually implemented auctions. This analysis is divided into three parts, corresponding to the three stages of each auction: starting problems (distrust, the reputation of participants, etc.), the course of the auction (behaviour of participants and results, in particular, the “winner’s curse”.

From auction theory to market design: Paul Milgrom and Robert Wilson’s contributions to Economics

The 2020 Economics Nobel Prize was awarded to Paul Milgrom and Robert Wilson. Both laureates have made seminal, crucial contributions to auction theory and practical market design. Here, we briefly describe those contributions and their significance within the general context of auction theory and practice. We also review the laureates’ substantial and highly influential work in other areas of economics.

Auction theory and its practical application

Introduction.The large-scale use of auctions today in various fields, while avoiding distortions in the behavior of economic agents is considered by scientists as one of the effective tools to improve public welfare. Research conducted by Nobel Laureates in Economics 2020 Paul Milgrom and Robert Wilson has made it possible to rethink the possibilities of reformatting auctions to ensure the maximum benefit from their holding for all subjects. P. Milgrom and R. Wilson demonstrated how the technically complex«constructions» of economics to build optimal auction designs make it possible to obtain complete material benefits for society.Prupose.To substantiate the specifics of auction theory, the formats of the latter and the contribution to their development of P. Milgrom and R. Wilson - winners of the Nobel Prize in Economics in 2020.Methods. During the preparation of the article general scientific research methods were used: analysis, synthesis, induction, deduction, as well as the method of formalization, which greatly contributed to the possibility of identifying the specifics of auction theory, their formats and substantiation of scientific achievements of Nobel Laureates in Economics P. Milgrom and R. Wilson in the development of theory and practice of auctions.Results. Research by P. Milgrom and R. Wilson, awarded the Nobel Prize «for improvements to auction theory and inventions of new auction formats»), prove that auction theory is an effective tool for regulators and governments of different countries that are interested in finding ways to most effectively use certain assets. Unlike most economic models, which usually require simplification and abstraction, the conclusions of scientists in auction theory can be applied in a specific practical area - from trade in raw materials and securities - to public procurement, tenders, subsoil and radio frequency, online advertising, etc. While previous researchers, including W. Vickrey and R. Myerson, devoted their work to private value auctions (when for each buyer the value of the object is known only to him and does not depend on the opinion of other auction participants), R. Wilson in the late 1960s, focused on the analysis of auctions with common value (when the object is of equal value to all auction participants, but each of them may have its own unique information about it). In particular, at auctions for the right to produce oil in a certain area, its value for all bidders is the same, but information on the field reserves and the specifics of the area may be different. R. Wilson also argued what should be the behavior of a rational bidder to avoid the so-called «winner’s curse» (a situation in which the winner of the object will pre- set an excessively high price, if guided solely by their own assessment of profits). Radio frequency auctions in the United States are the largest and best-known example of the practical application of the findings of R. Wilson and P. Milgrom, which made the previously inefficient and virtually free distribution of licenses a way to win for sellers and buyers and society as a whole.Discussion. Auction theory will continue to develop in the future, taking into account the new challenges posed, in particular, the need to develop tools and mechanisms for conducting virtual auctions in order to adequately adapt to digital reality. The need to develop a «road map» to address the shortcomings inherent in the existing auction formats in terms of taking into account the accelerated development of technology, increasing mobility, globalization and digitalization of the economy.

Modelling Bidding Behaviour on German Photovoltaic Auctions

In this article renewable energy support allocation through different types of auctions are assessed. The applied methodological framework is auction theory, based on the rules governing the German photovoltaic (PV) Feed-in Premium (FIP) auctions. The work focuses on bidding strategies based on an extended levelised cost of electricity (LCOE) methodology, comparing two different set of rules: uniform price and pay-as-bid. When calculating the optimal bids an iteration is developed to find the Nash-equilibrium optimal bidding strategy. When searching for the bid function, not only strictly monotone functions, but also monotone functions are considered, extending the framework typically applied in auction theory modelling. The results suggest that the PV support allocation in the German auction system would be more cost efficient using the uniform pricing rule, since many participants bid above their true valuation in the pay-as-bid auction Nash-equilibrium. Thus from a cost minimising perspective, the application of uniform pricing rule would be a better policy decision.